DOL Finalizes Major Revisions to Overtime Rules

It’s alive! The U.S. Department of Labor finalized regulations increasing the minimum salary level for an employee to be exempt from overtime pay requirements from $455 a week to $913 a week. This means that when the regulations become effective in December, unless your supervisors make at least that amount, they must be paid the overtime rate of time and one-half for each hour they work over 40.

In addition, under current law there was an exception from overtime pay for highly compensated employees (HCE) who make at least $100,000 annually but whose duties don’t qualify them for exempt classification. This regulation increases the HCE threshold to $134,000. Check with your HR person on this one as there are exceptions that apply to certain professions.

The minimum salary threshold will be updated every three years beginning in 2020. It will be adjusted so that it is equal to the 40th percentile of full-time salaries for workers in the lowest wage region (which is currently the South). As originally proposed, the exempt employee threshold would have been adjusted annually to equal the 40th percentile of full-time salaried workers nationally. This would have resulted in a threshold of over $50,000, which is the number I used in a recent blog. Nevertheless, if and when this regulation becomes effective, it will mark the first time that the exempt employee threshold is automatically updated on a periodic basis.

Why do I say “if and when this regulation becomes effective?” I’ve always thought that this regulation was, in part, politically motivated. I strongly suspect that it will become a major campaign issue with the Donald pledging to annul the regulation and Hillary pledging to ensure that it goes forward untouched.

But with the regulation now finalized, you must find out, if you don’t already know, how many of your currently exempt employees make less than this threshold, how much overtime they work, and if it makes more sense to bump their salaries so that you may continue to classify them as exempt employees, pay them overtime or make sure they don’t work more than 40 hours a week.

Incidentally, there is some good news in all this. Up to 10% of the standard salary level can come from non-discretionary bonuses, incentive payments and commissions, provided they are paid at least quarterly. Furthermore, the final regulation makes no changes to the way in which employers classify exempt and non-exempt employees based on the duties they perform. Many of us were concerned that the Department would institute a rigid test under which employers would have to document that a supervisor spends at least 50% of her time carrying out supervisory responsibilities. This would have harmed many small credit unions.

Finally, when you are done reading this blog, it’s time to reach out to your HR professional so that you can understand precisely how this regulation will impact your credit union. On that note, get to work and enjoy your day.